Post-Partition: India still owes Pakistan a little over Rs5.6b

KARACHI: When it comes to Pakistan-India relations, itâ€™s not just the territorial disputes that refuse to fade away even after 67 years of the Partition.
The division of assets and liabilities of the Reserve Bank of India (RBI) post-1947 remains incomplete to this day. According to the State Bank of Pakistan (SBP), India still owes it a little over Rs5.6 billion â€“ mainly on account of assets held with the RBI â€œpending transfer to Pakistanâ€.
In other words, the countryâ€™s central monetary authority believes India has yet to cough up money equivalent to the present-day value of the assets that RBI had refused to surrender to the government of Pakistan, although the latter was entitled to receive them post-Partition.
From the first-ever Statement of Affairs that the SBP issued on its second day of existence â€“ July 2, 1948 â€“ to the latest one released on June 27, 2014, the central bank has listed the unsettled claims on the RBI among its â€œassetsâ€ unfailingly for the last 66 years.
The SBPâ€™s department â€“ which deals with currency and the assets that underlie it â€“ shows the outstanding claims on the RBI under two distinct categories of assets.
The bigger chunk, comprising gold coins worth Rs4.1 billion, sterling securities amounting to Rs501.6 million, government of India securities worth Rs240.4 million and Rs4.9 million of rupee coins, appears as assets held with the RBI pending transfer to Pakistan. The smaller chunk consists of â€œIndia notes representing assets receivable from the RBIâ€.
While the first set of so-called assets is self-explanatory, the second claim on the RBI needs detailed explanation.
As per the agreement between political leaderships of the two sides, the RBI was to remain the central monetary authority for both India and Pakistan post-Partition, with Indian notes to stay on as legal tender in Pakistan until September 30, 1948.
According to the first annual report of the SBP for 1948-49, the two governments mutually agreed to end the RBIâ€™s status of the common monetary authority from July 1, 1948, as Pakistan became â€œexposed to grave dangersâ€ without the right to control its currency and banking.
As for the Indian notes and coins present in currency chests in Pakistan on June 30, 1948, and the ones encashed during the next fiscal year, Pakistan was supposed to return these to the RBI. Subsequently, the SBP was to claim equivalent assets against these Indian notes and coins from the Reserve Bank of India.
According to historian S Aijaz Husain, total assets that the government of Pakistan was entitled to receive from the RBI amounted to Rs1.7 billion. However, the SBP received assets worth only Rs1.2 billion.
The difference between the claims and the actual amount surrendered by the RBI was Rs490.8 million. Out of this amount, â€œIndia notes representing assets receivable from the RBIâ€ accounted for Rs430.2 million while assets â€œheld with the RBI pending transfer to Pakistanâ€ equalled Rs59 million.
This means that original, unsettled claims of Rs490.8 million have now ballooned to over Rs5.6 billion after adjusting for inflation, exchange rate revisions and appreciation of underlying securities during the last six and a half decades.
That Pakistan will ever be able to arm-twist its eastern neighbour into paying its claims seems impossible, at least in the foreseeable future. So why doesnâ€™t the SBP simply write off the unsettled claims and rid its Statement of Affairs of â€œassetsâ€ that practically donâ€™t exist?
In the post-gold standard era, the liabilities in the form of Pakistanâ€™s currency, currently in excess of Rs2.3 trillion, are largely backed government securities. Thatâ€™s why the assets in the form of unsettled claims on the RBI equal less than 0.25% of the SBP-issued notes in circulation.
The SBP spokesperson shied away from commenting on the issue. But several former central bankers The Express Tribune spoke to believe such a decision can only be taken by the countryâ€™s political leadership.
Doing away with assets, which owe their doubtful existence on the central bankâ€™s books to decades-old animosity with India, is likely to generate a backlash at home. With hyper-nationalist analysts frothing at their mouths on 24/7 news channels, any resolution of outstanding claims on the RBI appears improbable for now.

Seems that IMF and World Bank has rejected their latest loan application, so they are digging old files.

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This is the first I'm hearing of a new attempt at loans. The result of such a quixotic move is painfully obvious. The IMF and WB are not charities otherwise it would have just been aid. No one in their right mind would or should lend any more money. This whole maturity mismatch scheme is as old as the book. Just look at the terms of the latest loan, 36 months maturity, awfully close to an event, no? Couple that with everyone knows how you make money in pureland, 'earn' at falana fauji 'enterprise' and send it abroad and immigrate or as I like to call it Fudge and Flight. This is a good indication of possible future sovereign default or in fact in this case insolvency. You can only recycle your debt and refinance it so long, sooner or later the cost of servicing that debt will blow up in your face. And it's going to be worse than the next guy I'm talking about

All this while your fellow not-so-well-off and not-army-family abdul is training hard on how to pull the cord. What we are witnessing is the death spiral of a country. It may be slow but it is sure. The fundamental forces are there. What is keeping it afloat is the sheer weight of the country, its informal sector and its population. But in the real world, anything not self-propelled is bound to come to a stop.

This is the first I'm hearing of a new attempt at loans. The result of such a quixotic move is painfully obvious. The IMF and WB are not charities otherwise it would have just been aid. No one in their right mind would or should lend any more money. This whole maturity mismatch scheme is as old as the book. Just look at the terms of the latest loan, 36 months maturity, awfully close to an event, no? Couple that with everyone knows how you make money in pureland, 'earn' at falana fauji 'enterprise' and send it abroad and immigrate or as I like to call it Fudge and Flight. This is a good indication of possible future sovereign default or in fact in this case insolvency. You can only recycle your debt and refinance it so long, sooner or later the cost of servicing that debt will blow up in your face. And it's going to be worse than the next guy I'm talking about

All this while your fellow not-so-well-off and not-army-family abdul is training hard on how to pull the cord. What we are witnessing is the death spiral of a country. It may be slow but it is sure. The fundamental forces are there. What is keeping it afloat is the sheer weight of the country, its informal sector and its population. But in the real world, anything not self-propelled is bound to come to a stop.

From quoted report: "The funding needs have been calculated on the basis of projections made by IMF and the State Bank of Pakistan." - You know what that means... Turbat Typo Time(godd*mn, I love these alliterations!)

"The report said the delay in launching an operation in North Waziristan was a reason for stopping the release of the promised $375 million as the Obama administration had no concrete argument to press the Congress to give the go-ahead for the payments." - This is the figure I was looking for. Trying to understand what strain this NW operation will put on the Pakconomy. Add to this the cost of some propaganda of some picture of Jeeps driving around and a few stock photos of a blunder or three being refuelled to go against the fighter jets of teh TTP located deep in miramshah, no doubt being flown by Adnan Rasheed and the logistics of moving some of the army close to villages before they blow it up with arty. I would say 400M? maybe.

India also loaned money to Pakistan at the time of Independence. Pakistan hasn't paid back. We can write off whatever we owe as collateral repossession.

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Oh not at all. These stuff sometimes comes handy when the pakis need to be put in their place. When we know that they cannot pay back a dime, writing these off would be a loss of a leverage. You cannot know when something comes handy in future.

I don't understand, please elaborate.
How much is 300 crore in billions?
Is that amount bigger than 5.6 billion ruppes (1948 value)?

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OK,

The present value of the amount India owes to Pakistan is 5.6 Billion Rupees ( already adjusted for inflation, interest and currency parity with India)

( In 1948 it was 490 million Rupees)

But, the value Pakistan owes to India in 1948/49 is 300 crore or 3 Billion Rupees. Indian govt. has not put interest or adjusted for inflation.
So, the Rs. 3 billion value will balloon if adjust fort the same as Pakistan has done.

The 5.6 billion is $ 56 million dollars if original value is in PKR or just above $ 100 million if original value is in INR. So, the amount can be paid. India has the capacity to pay.

Now, think Rs. 300 crore is $50 million ( ( under current conversion value) ) so, adjust it for inflation and interest and find the value, you owe to India.